moving from 1st tier HF to smaller HFs
Hey guys,
I am a sub pm/trader in multi manager (mlp, citadel, p72 type). I have been here for 5 years.
What are your thoughts on moving from these multi manager to smaller multi manager shops? I am in systematic/quant equities trading space.
the size of the fund is approx. $5b.
It offers me higher payout, mandate to build out my strategies, few headcounts for me to hire- basically I get to build and hire the business. Obviously there are downside associated with this - if I don't succeed, it will be very difficult for me to go back to the role that is as good as my current role.
What are your thoughts? appreciate 2 cents.
Depends on your current PnL linkage and size of your sleeve.
How old are you? If below 35ish I think makes sense, prob have good enough track record to justify the move and try to be a bit more “entrepreneurial” at a smaller shop
I’d prob be keen to understand partners’ track record, what’s fund raising like? Redemptions? Do you believe in the strategy? What’s your share of PNL? 5B AuM would make me pretty comfortable tbh
Also maybe make sure you have a say in dealing with sellsides. I’m not on the buyside but would assume important for you to work with people you like and know. Aka do they do flow with 1-2 shops because they are PBs and you’d be captive there even if you’ve had bad experiences in the past? Can you deal with whoever you want? Understand systematic bit different to traditional fundamental but I think still a question I’d have
I wouldn’t be so sure about not being able to go back to a multi manager in case this goes wrong tbh. I’ve never worked for one but just to quote one example (I’m sure you know space better than I do) didn’t citadel axe whole industrials team some time ago? Blow ups happen everywhere and if you’re in charge of actually managing the business rather than “just” making money I think that makes you valuable.
Would be super interested in knowing how this goes for you
Doesn't Citadel axe what they deem as underperforming pods/groups all the time? Didn't know they had dedicated industry teams which were broader than their pods... unless I'm understanding wrong
Thank you for thorough response. I think these are all valid points. I am getting at least 2x payout increase, with similar amount of capital to run (about 70% of the current team's capital), with a little bit more leniency around the stop. To me the most thrilling/exciting part is to build the business based my long term and short term view. I think it's worth a shot.
How much is the increase in payout & capital, any changes in stop out thresholds, any material change in deferred comp, how long are they willing to give you for a set up period - are things pop up in my mind. But my two cents for going for new chances, as you know shop’s name doesn’t matter much at the end of the day
Thank you for all these valid points. I think payout, capital both increased, with stop-out being a little bit more flexible vs mechanical shut-down at aforementioned shops. I know the words can always change, but at least it seemed that the fund has appetite to take risk in my types of strategies.
I made a similar move first off you have to be coming off some “decent to good years” so you do not panic year1. Next, literally 6months in and the large MMs were calling on my radar again, why cause if you didnt flame out at the last place and willing to make a move to have more control, your strategies people appreciate the entrepreneurial spirit and know that fits with the MMs model.
Now, the bad its a lot of stress of basically running your own business. While at MM you are in the same spot, truly they try to make ways to let the PMs focus on strategy and make their lives easier elsewhere. Basically the way I see the large MMs know the strategies/sectors they want and just want to find the right pod/pm to deploy for them. At a smaller MM, they just watch your risk and you have to create and explain the strategy you are building and it all falls on you.
Capital constraints, the large MMs just deploy capital as you perform, truly they seem to be always long capital these days. The smaller MMs dont have that and you need a strategy around that.
As someone mentioned the senoir leadership is key and you have to be comfortable with them. Truly you want someone who was in your spot a while back.
So really it comes down to how much control and how much you think you can create your team and strategy yourself.
May I ask some generic cost questions? Do you have internal hurdle rate? e.g., Cost of Capital, Leverage. My understanding is that for MLP - 1.5%; BAM - 2%; Citadel - None. Do you also have something like this? Ballpark is fine. Is something like 2-3% on AUM sound reasonable?
After being at one, all I would say is, do your research and understand the ins and outs of the firm, ask a lot of questions during the interview.
There's significantly more risk at smaller shops, one LP decides they want to move capital elsewhere, it could be the end of your firm. Understand the investment horizon of the fund. Mine went down, so its left me with a sour taste in my mouth.
That being said if anyone wants to hear an absolutely crazy story about seeing all that going down, look no further.
Make a thread. SB'ed in advance.
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